Common Sense Analysis, Protection and Profits …

You’re not going to like what I have to say in this issue. But I’m just going to tell it like it is. No spin. Just common sense analysis.

The Wall Street “experts” and other “pundits” who don’t understand the macro picture … who continually miss the big trends … and steer you the wrong way — are as ignorant a lot as I’ve ever seen. They ought to be ashamed of themselves.

They missed the tech wreck of 2000 – 2001.

They missed the top in the Dow in 2000.

They missed Enron and WorldCom.

They missed the bear market in the dollar, the breakout of inflation.

They missed the bull market in commodities. In gold. In oil. In food and agriculture.

They missed the bursting of the real estate bubble. The mortgage and derivatives disasters. The bankruptcies of Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers, AIG, and more.

Could they be more wrong? What are they smoking?

And now, they continue to miss the big picture, completely.

Common Sense Analysis #1:
The U.S. Dollar Is Toast.

How, I ask you, is the dollar going to hold its value when the Federal Reserve is now accepting just about anything as collateral for loans?

How is the dollar going to strengthen in any meaningful way when the Fed has already swapped out $1 trillion of its pristine assets for junk?

How is the dollar going to stabilize when the Fed is about to print up another $700 billion, or so? When the budget deficit is going to explode?

When the current account deficit is widening? When the national debt is about to mushroom from $9.6 TRILLION to at least $11.31 TRILLION?

When there is another $50 TRILLION in debts out there, unfunded liabilities of Social Security and Medicare?

I repeat, the dollar is doomed.

I’ve long maintained that the Fed and the authorities in Washington will do whatever it takes to avoid a repeat of the Great Depression, even if it means destroying the value of the U.S. dollar and causing hyperinflation instead of deflation.

So-called experts on Wall Street have consistently missed the big trends and have steered investors in the wrong direction.

Now, it should be abundantly clear that my warnings have been right on the money.

Even before the Fed and Treasury’s latest rescue plans, the dollar lost nearly 33% of its purchasing power.

Now it’s embarking on its next leg lower. Before this crisis passes a few years from now, I expect the dollar to lose at least another 50% of its value, its purchasing power, probably even more.

Common Sense Analysis #2: The Next
Bubble to Burst Is the Bond Market.

How can it not?

With all the printing of money that has to be done … with all the new debt the Treasury is going to issue … with the value of the U.S. dollar set to remain in the claws of a long-term bear market, how, I ask you, can U.S. Treasury notes and bonds be a safe investment?

With the value of the U.S. dollar faltering, the bond market is likely to be the next bubble to burst.

I maintain my position on the U.S. bond market. Don’t touch it with a ten-foot pole. If you own bonds, get the heck out of them.

And don’t let anyone tell you otherwise, that U.S. Treasury notes and bonds are a safe investment right now, a safe haven from the crisis engulfing the U.S.

I repeat: They are not safe. Indeed, the bond market is finally waking up to seriously deteriorating credit worthiness of the U.S.A. Last week, bonds had their worst down day in 28 years, with the 30-year bond falling nearly FOUR full points in a single trading session, or over a $4,000 loss in principal for a $100,000 face value bond.

That move was just the opening salvo in a bond bear market that’s just begun.

Common Sense Analysis #3:
More Inflation Is Coming.

How can inflation not go higher?

Inflation is largely a monetary phenomenon, caused by massive printing of money, massive issuance of new debt, and massive currency debasement.

You have all three of these working overtime now, on an unprecedented scale, and for months and years to come.

Plus, you have something else occurring on a unprecedented scale: Massive new demand for essential goods from 40% of the world’s population — 3 billion people who hitherto were not part of the modern world and were largely cut-off from seeking better lifestyles.

Do you think there’s any turning back the desires of 1.31 billion souls in China seeking a better life? Or 1.13 billion people in India? Or another billion people in other emerging economies in Asia, or Russia, or Latin America?

It’s foolhardy to think anything to the contrary. Sure, there may be some slowdowns, some retrenchment in emerging economies.

But the long-term trend toward modernization that’s occurring in Asia and Latin America is not going to be stopped. Not by a credit crisis, not by any government, nor by any central bank, international bank, or any other force.

Add that into the thorough debasement of the dollar that is now occurring, and inflation is baked into the cake, rising to the surface, and set to explode higher.

Common Sense Analysis #4: Stocks
Have Already Lost 72% of Their Value.

I’m one of only a handful of analysts who recognize this. The U.S. stock markets have been in a massive stealth bear market for almost eight years now.

When measured in terms of honest money, gold, the only true money in the world, U.S. stocks have lost 72% of their value since the year 2000.

They’re likely to lose more, in both nominal terms (the numbers you hear every day for the DJIA and the S&P 500, or for individual stock quotes) — and in real terms (their purchasing power in dollars, when measured against gold, against inflation).

In fact, if the U.S. was on a gold standard, and our dollars were backed by gold, the Dow Jones Industrials would be trading at about 3,300 today. That’s how much value they’ve lost.

But we don’t have honest money today. We have funny money. So the Dow Jones Industrials and the S&P 500 stocks look like they’re doing okay. But they’re not. If you’ve been fully invested in the stock market for the last seven years, 72% of your wealth has gone up in smoke.

Someday, I’m not sure when, stocks (what’s left of them) will have no choice but to reinflate, to catch up with inflation. And the Dow will soar to over 35,000.

But we haven’t reached that point in the cycle yet. Although I believe it’s coming, and closer than anyone wants to believe at this time, the downside is not yet over in the stock markets.

Common Sense Analysis #5: Paper Assets
Are About to Be Shunned Big Time.

It’s already started. Despite everything to the contrary to get you to buy paper assets …

— Stocks, as I’ve just shown you, have lost 72% of their value.

— The dollar has lost 33% of its purchasing power in the last seven years, and is about to lose a lot more.

— The U.S. bond markets are about to be trashed, embarking upon a sharp, deep bear market.

In short, paper assets are already being shunned. They’re a lousy investment when a nation’s cornerstone is being devalued, its currency.

They’re a lousy investment when you don’t know if the government is ever going to be able to pay off its debts without inflating away asset values (deflating its currency).

Paper assets are a lousy investment when they’re backed solely by debts, by IOUs, by nothing but promises.

That’s the era we’re entering now, and it’s going to get a whole lot worse before it ever gets better.

Common Sense Analysis #6: The Only Way
to Protect Your Money and to Profit is …

Given all of the above, no spin common sense analysis of today’s world and the credit crisis, what’s the smartest way to protect your money?

What’s the smartest way to profit?

Simple …

First, make sure up to 25% of your investable portfolio is in gold.

One way to protect your money and profit is to make sure up to 25% of your portfolio is in gold.

I upped that allocation last Tuesday in a Flash Alert to my subscribers, the day before gold had its single biggest move up ever!

And I alerted you to increase your gold holdings last Thursday, in my Money and Markets column. Sorry I couldn’t get you that signal earlier. But as I’m sure you’ll understand, active subscribers get my recommendations first.

In any event, for a full one-quarter of your investment portfolio, I believe gold is the best place to be, bar none.

Specific recommendations, including Flash Alerts like the one I sent my subscribers last week just before gold exploded higher, can be found once you become a member of my Real Wealth Report.

Second, stay out of U.S. Treasury Notes and Bonds.

They are a disaster in the making.

Instead, with any money you have that is not invested in gold or my recommended natural resource or Asian stocks — keep those liquid funds in a Treasury-only money market fund.

Third, I recommend a portion of that go to foreign currency Certificates of Deposit in either Australian or New Zealand dollars.

Investing in foreign currency CDs of countries like Australia and New Zealand is a smart move. They are fiscally prudent countries, and they are commodity-based economies. Plus, you can get a current yield of up to 6.27%.

Foreign currency CDs are easy to invest in — the best source, Everbank, at www.everbank.com/001Currency.aspx.

Fourth, stick with tangible assets, natural resources.

In addition to gold, consider other natural resource investments via ETFs and stocks in select natural resource companies.

As I’ve already shown you, natural resources should easily outperform almost all other investments for all the common sense reasons and forces I cite above.

Details can be found in my Real Wealth Report.

Fifth, for additional diversification, look to Asian stock markets. Asian economies and markets are great long-term bets and are already starting to once again outperform the U.S. markets.

Indeed, my seven favorite Asian natural resource companies’ share prices have just exploded higher again, jumping over 10% in a single day! All of them are looking great.

Details can be found in my latest issue of the Real Wealth Report that was published last Friday.

Lastly, stay focused on the big picture. Use common sense analysis like I’ve done for you in this issue.

Best wishes,

Larry

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.

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